How do I use shape keys to bake a soft body animation?
To convert a Soft Body animation into shape keys you can use the MDD importer/exporter. The Export option exports the soft body animation to a file and the Import option imports the file into a set of shape keys, along with keyframes to automatically control the shape keys to maintain the animation.

First, use the User Preferences option to enable the MDD importer/exporter addon by opening the Add-ons tab, typing 'MDD' into the search and enabling the Import-Export: NewTek MDD format add-on.



Next, select your soft-body object and use the 'File/Export/Lightwave Point Cache (.mdd)' option, specifying a filename to export the animation to.

Once exported, use the 'File/Import/Lightwave Point Cache (.mdd)' option to import the animation. This will create a set of shapekeys with keyframes. The keyframes automatically adjust the shape keys influence so as to activate/deactivate them to animate through the frames of the animation. At this point you can remove the Soft Body simulation.



You can adjust the keyframes on the shape keys to effectively 'blend' the animation at the start/end.

Here is a fantastic answer which uses a similar technique except that it uses a Mesh Cache modifier in place of the 'Import' step. By using two modifiers (with offset frames) the animation can be more easily blended at the start/end of the animation : https://blender.stackexchange.com/a/10661/29586